Policy Microsimulations
Bipartisan Child Tax Credit Expansion: Analysis of the Tax Relief for American Families and Workers Act of 2024
Summary
Congressional tax negotiators have announced an agreement to expand the Child Tax Credit (CTC). The proposed reform falls far short of the temporary CTC expansion in 2021—it does little to increase the size of the credit or remove harmful work requirements. However, the proposal significantly increases benefits for low-income families currently eligible for a partial CTC. This group represents the vast majority of low-income families who benefited from the temporary 2021 expansion.
The proposal would make two important reforms to the current credit’s design. Under current law, many low-income families receive the same benefit regardless of how many children they have, while middle and high-income families receive a larger benefit if they have more children. The proposal would end this disparate treatment, often doubling and tripling benefits to low-income families with multiple children. Second, the agreement allows families to choose between their current or prior year’s income as the basis for their CTC, which will greatly benefit low-income families who often have significant year-to-year variation in earnings.
Both changes will primarily target low-income families who currently receive a partial credit. However, by rejecting full refundability (i.e. making all low-income families eligible for the full credit, including those out of the paid labor force), the proposed reforms are far less inclusive than the temporary 2021 expansion, which some critics argue makes it ineffective at reaching most low-income children. Such criticism assumes that most low-income families have no earnings and would therefore receive no benefit under the proposed bill, which maintains a work requirement. However, IRS data shows that the vast majority of low-income recipients of the 2021 expansion had some positive income, but not enough to receive the full credit under current law. I estimate ninety percent of these parents would see an increase in their benefits under the proposed expansion. While families with no income—thus those with the greatest need—are largely excluded from the proposal, the reforms would still reach the vast majority of low-income children who benefited from the 2021 expansion.
Key Takeaways
- The proposed reforms target benefits to low-income families. I estimate the largest increases in benefits will go to families with incomes between $10,000 and $15,000 per year.
- The agreement excludes families with no income, but that group represents only 4 percent of the families with incomes below $40,000 who benefited from the 2021 expansion. The bulk of low-income families claiming the 2021 credit had some earned income and would stand to benefit from the new proposal.